Plaintiff 1 and three others (Attorneys Seo-dilution et al., Counsel for the plaintiff-appellant)

delel Investment Advisory Co., Ltd. and 6 others (Law Firm Yang & Yang, Attorneys No. 1 and 2 others, Counsel for defendant-appellant

June 7, 2006

Seoul Central District Court Decision 2004Gahap73578 Delivered on December 16, 2005

1. The plaintiffs' appeals against the defendants are all dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance is revoked. The Defendants jointly and severally pay to Plaintiff 1 Co., Ltd. 1,50,000,000, and 1,300,000,000 won to Plaintiff 2, and 1,000,000 won to Plaintiff 3, and 100,000,000 won to Plaintiff 4, and 1,00,000,000 won to the day of delivery of the copy of the instant complaint to the day of full payment.

1. Basic facts

The following facts are without dispute between the parties, Gap evidence Nos. 1 through 6 (including each number; hereinafter the same shall apply), Eul evidence Nos. 7, 8 (excluding the part which is not believed later), Gap evidence Nos. 9, 12, 13, and 14, Gap evidence No. 16 (Provided, That the part which is not believed later, excluding the part which is not trusted later), Gap evidence Nos. 17, 18, 19, 20, 23, 27, 28, 32, 33, 34, Eul evidence Nos. 1 through 16, Eul evidence Nos. 21 through 29, Eul evidence Nos. 32, Eul evidence Nos. 1 and 3, non-party No. 1, witness No. 2 (Provided, That the part which is not trusted later), Gap evidence No. 16 of the first instance trial, Gap evidence No. 2, and defendant No. 8's testimony and investment securities of the first instance court (hereinafter "No. 7 evidence No.

(a) Status of a party;

(1) Status of the plaintiffs

Plaintiff 2 was currently working as the representative director of Plaintiff 1 Co., Ltd. (hereinafter “Plaintiff Co., Ltd.”) through the managing director, the Korea Mutual Savings and Finance Company and each representative director of the Korea Mutual Savings and Finance Company and the Korea Mutual Savings and Finance Company, respectively. The Plaintiff Co., Ltd. was established for the purpose of real estate leasing business. The Plaintiff Co., Ltd. was established for the purpose of real estate leasing business and added to the purpose of securities investment management, derivatives investment management, overseas fund investment, etc. on March 24, 200. Plaintiff 3 and 4 are children of Plaintiff

(2) Status of the Defendants

Defendant 1 Investment Advisory Co., Ltd. (hereinafter “Defendant 1”) is a company established for the purpose of investment advisory business, discretionary investment business, etc., Defendant 2 is the representative director of the Defendant Company from March 3, 200 to May 30, 2002, and was a director from June 15, 2004. Defendant 3 is a person who served as the representative director of the Defendant Company from May 30, 2002 to the date of May 30, 2002. Defendant 4 is a vice president from May 30, 200 to the date of Defendant 20. Defendant 5 passed the general management examination of derivatives on June 24, 2001; Defendant 5 was a person who passed the Defendant Company’s management of derivatives from around 10, 200 to around 10, 200, and Defendant 6 was an employee of the Defendant Company from around 20, 2000 to around 30, 201.

B. State 1) Progress of options trading

(1) Details and circumstances of opening an account

On December 14, 1998, Plaintiff 2 opened an account in Samsung Securities with its own name, and opened an investment advisory account with its future 3rd 1, 200, and opened an investment advisory contract with its own future 2,000, and entered shares or futures options trading through indirect investment around 200,000, around May 1, 200, written a preliminary survey on the investment trend of Defendant Company with its own 10 to 6 months or 100, 200, 300, 200, 300, 200, 30,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,00,000,00,000 won.

(2) On September 11, 2001, contracts and details of transactions before and after terrorist incidents in the United States.

(A) On May 14, 200, Nonparty 3, who was an employee of the Defendant Company and was qualified to engage in options trading upon passing the management professional manpower examination and obtaining the investment date, was required to operate the options trading method except for the system trading method under the agreement of Plaintiff 2 and the system trading method under the agreement of Plaintiff 2. As a result, the Defendant Company’s management of the said account was 451,241,880 won in the part of the water trading in July 200. However, the system trading method was 483,224,290 won in the part of the product trading, and Plaintiff 2 demanded that it operate the options trading method except for the system trading method).

(B) On behalf of the Plaintiff Company, on July 20, 200, Plaintiff 2 entered into a discretionary investment contract with the Defendant Company on behalf of the said Company with an amount calculated by multiplying the amount exceeding KRW 3 billion in cash, the contract period from July 20, 200 to July 20, 2001, by the rate of 15% for the amount exceeding KRW 30,000 per annum of the base return rate, and the person in charge of discretionary investment entered into a discretionary investment contract with Nonparty 3, basic fees, and performance fees by the amount exceeding KRW 20% per annum of the base return rate. On the same day, Plaintiff 2 opened an account via the Defendant Company, and deposited KRW 3 billion in the said account.

(C) Nonparty 3: (1) concluded the above contract amount of KRW 10.11.1 billion to KRW 20.20; (2) KRW 20.10 billion to KRW 30.20 billion; (3) executed the above contract amount of KRW 20.20 billion to KRW 30.15 billion; (3) KRW 20.3 billion to KRW 20.20 billion to KRW 30.5 billion; (4) executed the above contract amount of KRW 10.20 billion to KRW 30.5 billion; and (2) executed the above contract amount of KRW 20.3 billion to KRW 20.5 billion; and (3) executed the basic contract amount of KRW 20.3 billion to KRW 20.5 billion to KRW 30.15 billion; and (3) executed the contract amount of KRW 20.3 billion to KRW 20.5 billion to KRW 20.6 billion to KRW 96.3 billion to KRW 20.5 billion; and

(D) While managing the respective accounts of Plaintiff 2 and Plaintiff Company, Nonparty 3 incurred losses of KRW 277,718,210 from the Plaintiff Company’s account in January 2001 and KRW 386,224,710 from Plaintiff 2’s account during the said period, and continuously made profits during the remaining period as indicated in the profit and loss adjustment table. Nonparty 3’s investment strategy used during the said period was mainly 10th of the string letter sales strategy and 11th of the string showes sales strategy.

(E) However, as the share price index of September 11, 2001, when the terrorist incident occurred on September 11, 2001, 4,170,074,050 won from the Plaintiff’s account, and 4,036,384,080 won from the Plaintiff’s account during September 12, 2001, and 3,474,930,910 won from the Plaintiff’s account and 3,86,068,360 won were incurred from the Plaintiff’s account, and part of the losses were incurred thereafter. However, in the water transaction in September 2001, Plaintiff 2 suffered losses from the Plaintiff’s account, such as the statement in the list of profits and losses.

(f) On September 20, 201, after the expiration of each contract period between the Plaintiff and the Defendant Company, Plaintiff 2 entered into with the Defendant Company, on one hand: ① Bonds 1,675,693,73 won, 9,257,214,215 won, total amount of 10,932,907,948 won, contract period from September 20, 2001 to September 19, 2002; KRW 34% of the base rate of return; KRW 30,00,880,849 won, bonds 9,757,2727,72732,157,948, and KRW 30,301,000, total amount of the contract assets under the name of the said Company; KRW 30,301,939,309,419,309,309,419,305,29,3015,39,

(3) Contracts and details after December 2001

(A) Subsequent to the 201 December 201, Nonparty 3: (a) determined the rate of return on 2,156,416,175 won from the Plaintiff’s account; (b) 2,260,775 won from the Plaintiff’s account; (c) 96,12,270 won from the Plaintiff’s account; and (d) 96,470 won from the Plaintiff’s account; and (e) 96,470 won from the Plaintiff’s account; and (b) 96,47, 97, 97, 296, 396, 47, 97, 96, 97, 97, 166, 296, 36, 47, 97, 97, 97, 97, 97, 166, 294, 254, 297, 297, 396, 397,

(B) After the conclusion of each discretionary investment contract as above, Nonparty 1 entered into from January 2002 to April 2002, and Defendant 7 entered into an option transaction from May 2002 to December 2002 with each of the above accounts of the plaintiffs. At the time, Nonparty 1 and the defendant 7 entered into an investment strategy, etc., the investment strategy used by the plaintiff 1 and the defendant 7 was replaced by that of the non-party 3, and made profits of KRW 108,834,658 from the plaintiff 2's account in total in 2002. The losses of KRW 18,324,890 from the plaintiff's account, losses of KRW 2,456,750 from the plaintiff 3's account, losses of KRW 4,963,450 from the plaintiff 4's account, and losses of KRW 2,963,50 from the plaintiff 4 to December 4, 2002.

(4) Contracts and details after January 2003

(A) On January 10, 2003, after the expiration of the contract period of paragraph (4) of the above subparagraph (A), the plaintiff 2 entered into a discretionary investment contract with the defendant company on January 10, 2003, which entered into between the plaintiff company and the defendant company, with the contract amount of KRW 294,084,479 in cash, KRW 6,640,764,132 in cash, total amount of KRW 6,934,848,61 in cash, contract period shall not be paid from January 10, 203 to January 8, 2004, and the basic fee and performance fee shall not be paid from January 10, 2003 to January 8, 2004. The contract amount which takes precedence over the above basic contract amount shall be KRW 16 in conversion base revenue, and the contract amount shall be paid KRW 100 million for the first time when the amount obtained by deducting operating profits from the conversion base revenue reaches KRW 3 billion.

(B) While Defendant 6 traded options with each of the above accounts of the plaintiffs from January 2003 to August 2003, the plaintiff 2 did not generate any profit as much as he expected. On August 18, 2003, the defendant 3, the representative director of the defendant company, who was the representative director of the defendant company, as the representative director of the defendant company, issued a written oath that "if the losses occurred by settling the plaintiffs' account operation results every six months after August 18, 2003, the amount of losses shall be compensated in cash within 7 days by the defendant 3, and the defendant 3 shall provide the whole property as security to secure this."

(5) Contracts and details after January 2004

(A) On January 9, 204, after the plaintiffs changed their respective discretionary investment contracts with the defendant company, on which they were concluded, on January 1, 2004 (1) between the defendant company and ① Bonds 9,257,214,215, total contract period of 10,127,85,717, and contract period of 10,127,85,717 in their own name; and the basic fee and performance fee are not paid until January 9, 2004; the annual amount of revenue shall be 5,254,71,7666, and the annual amount of revenue shall be 986,67,986, and the annual amount of revenue of the above contracts shall be 986,97,986,67,986,986,67,986,97,967,97,969,67,97,296,396,57,296, and9696, respectively,

(B) From January 2003 to September 2003, Defendant 5 traded options with each of the above accounts of the Plaintiffs from around October 2003 to around May 2004, when the Defendant Company declared its termination. As above, the investment strategies used in conducting options trading are similar or more stable to the existing investment strategies, and there was no substantial loss or profit as stated in the profit and loss adjustment table.

(6) An explanation and report during the transaction period;

Plaintiff 2 entered into each discretionary investment contract with the Defendant Company several times as above, and during the period of delegation of options transaction, the Defendant Company received the daily, weekly and monthly operational report on options transaction from a person in charge of full-time investment in the Defendant Company or from our investment securities by facsimile or telephone, and also explained the asset management plan.

(7) Details of deposits and fees

Meanwhile, the amount of cash and bonds deposited in each of the above accounts during the period during which the plaintiffs entrusted options transactions to the defendant company is indicated as shown in attached Table 6. The amount of money deposited and deposited in each of the above accounts is as stated in attached Table 6. The defendant company received 608,900,000 won in total from June 8, 2000 to September 11, 200, which was the date when the first discretionary investment contract was concluded, before the terrorist incident occurred, and there was no commission paid after the terrorist incident occurred on September 1.

C. Termination of a discretionary investment contract concluded between the plaintiffs and the defendant company

(1) As above, Plaintiff 2 did not incur much profits even after concluding each discretionary investment contract with a condition that it will not pay fees, and the Defendant 2, who was the former representative director of the Defendant Company, asked Nonparty 3 and Defendant 7, etc., who was in charge of the full-time investment in the Plaintiffs’ account, who were in charge of Nonparty 3 and Defendant 7, who were in charge of the full-time investment in the Plaintiffs’ account.

(2) On May 14, 2004, the Defendant Company notified the Plaintiffs that each of the above discretionary investment contracts should be terminated on the ground that the risk level compared to the expected profits of the customers pursuant to each discretionary investment contract concluded as of January 9, 2004 does not coincide with the management method of the Defendant Company.

2. Determination as to the plaintiffs' claim against the defendant company

A. The plaintiffs' assertion

(1) At the time of concluding a discretionary investment contract with the Plaintiffs, the Defendant Company did not explain the safety of the Defendant Company’s option hedge trading method, and did not explain the risk of the option trading and the risk that the securities may also incur losses.

(2) Unlike prediction, the Defendant Company used a ice sales strategy, which could cause a significant loss to the large scale of the share price index, and caused a serious loss to the Plaintiffs in the risk management in the water transaction in September 12, 2001, December 2001, July 2002, and January 2003. The Defendant Company did not have risk management strategies or internal control systems, and ultimately violated the duty of due care as a good manager to the customers required by an investment advisory company.

(3) After a terrorist incident occurred on September 1, 199, Defendant Company promised to recover assets by setting the base rate of return at 34%, as well as induced the Plaintiffs to continue to delegate investment.

(4) On January 9, 2004, the Defendant Company concluded a discretionary investment contract with the Plaintiffs and agreed to achieve the revenue amount of base conversion revenue, but unilaterally terminated the contract with the Plaintiffs on May 14, 2004 prior to the expiration of each discretionary investment contract period.

(5) Due to the above various reasons, the Defendant Company unfairly solicited the Plaintiff to make an investment and violated the duty of loyalty or protection to the Plaintiffs who are customers, and thus, the Plaintiffs are liable to compensate for the damages suffered.

B. Determination

(1) First of all, according to the allegation that the defendant company did not explain the risk of the option transaction. According to the Gap evidence No. 1, the defendant company's explanation of the investment explanation of the defendant company, the defendant company's explanation of the option hedge transaction "any stable transaction with low risk according to the change of market direction because the scenario itself is hedged", and "30% of the target profit rate for the system crowdfunding, 20% of the target profit rate, 30% of the risk price, and 10% of the target profit rate for the options transaction which were not known to the defendant company's representative director prior to the occurrence of the above risk transaction (the defendant company's explanation of the risk of the investment option transaction with the defendant company's representative director prior to the occurrence of the risk of the investment option transaction with the defendant company's investment option, the defendant company's explanation of the risk of the investment option transaction with the defendant company's representative director, which appears to have been 10% prior to the occurrence of the investment option transaction with the defendant company's investment option company's 20.

(2) Second, even if Defendant Company failed to use its investment strategies with strong risk or speculation, it is difficult to view that there was an investment risk of Defendant Company 1’s failure to perform its investment risk management, and as a result, it can be seen that there was an investment risk of KRW 100,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,0000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,00,000,00,00.

(3) Third, according to the reasoning of the lower judgment, Defendant Company’s assertion that it obstructed the formation of correct awareness of risks accompanying the Plaintiffs’ transactional activities or actively solicited the Plaintiffs to continue to delegate investment to the Defendant Company in light of the customer’s investment situation while presenting the base return or conversion rate. However, in order to establish tort liability against investors in the event of losses caused by investment, it does not require the Plaintiffs’ active deceptive act as to how to guarantee interests, at least the point of transaction, customer’s investment situation (such as financial status, age, and level of social experience) and its explanation, and thus, it cannot be seen that it interfered with the Plaintiffs’ reasonable formation of investment risk accompanying the Plaintiffs’ transactional activities or that it continuously recommended the Plaintiffs’ transaction with options in light of the Plaintiff’s investment situation, and thus, it cannot be seen that the risk of executing the Plaintiffs’ discretionary investment contract was limited to the Plaintiff Company’s act of not only the case where it continued to have been entrusted to the Defendant Company for 20% prior to the conclusion of the contract’s investment risk.

(4) On January 9, 2004, the plaintiff company unilaterally expressed that it violated the duty to protect the plaintiffs by unilaterally declaring the termination of the contract on the discretionary investment contract as of January 9, 2004. According to the discretionary investment contract as of January 9, 2004, the contract amount is until the expiration date of the contract amount reaches the revenue amount of the conversion conversion standard. Despite the failure to achieve the revenue amount of the conversion standard, the defendant company expressed to the plaintiffs on May 14, 2004 the intent to terminate the discretionary investment contract as of January 9, 2004. However, even if the contract amount as a kind of delegation contract under the Civil Act has been stipulated, the contract amount can be terminated (if one of the parties terminates the contract at a disadvantage of the other party without any inevitable reason, it shall be compensated for losses, and in particular, the conversion standard amount of the contract amount is not effective between the plaintiff company and the plaintiff company as of January 2, 2004, and it can not be claimed that the contract amount is invalid as of the defendant company's.

(5) Lastly, an investment advisory company or its executives and employees agree to guarantee customers a certain minimum amount of profit in the operation of securities trading accounts in the future by compensating for losses incurred in the accounts of the customers, is null and void as they are prohibited under subparagraphs 4 and 7 of Article 70-6 of the former Securities and Exchange Act (amended by Act No. 6423 of March 28, 2001), Article 35(3)2 and 4 of the Mutual Fund Act (amended by Act No. 6694 of April 27, 2002) and Article 147(1)4 and 8 of the Indirect Investment Asset Management Business Act (amended by Act No. 6987 of October 4, 2003). Thus, the plaintiffs' assertion on the premise that an earning rate guarantee agreement is valid is also without any justifiable reason.

3. Determination as to the plaintiffs' claims against the defendant 2, 3, 4, 5, and 6

The plaintiffs asserted that the defendant company or the person in charge of the discretionary investment in the defendant company's company caused unlawful damage to the plaintiffs as alleged in the above "paragraph 2-A". Since the above defendants neglected their duties intentionally or by negligence in the former and present representative director or director of the defendant company or caused damage to the plaintiffs in the performance of the defendant company's duties, they are jointly and severally liable for damages suffered by the plaintiffs pursuant to Article 148 of the Indirect Investment Asset Management Business Act and Article 58 (1) of the Securities and Exchange Act. However, as determined in the above "paragraph 2-B", unless the defendant company or the person in charge of the discretionary investment in the defendant company's company's company's or the defendant company's discretionary investment in the defendant company's company's

4. Determination on the plaintiffs' claim against the defendant 7

From May 2002 to December 2002, Defendant 7 traded options with the Plaintiffs’ account. The Plaintiffs asserted that, by taking a physical transaction in July 2002, Defendant 7 suffered loss regardless of the extent of the price index, Defendant 7’s total loss of KRW 2,010,558,640 in the Plaintiffs’ account, Defendant 7 violated the duty to protect the Plaintiffs, and thus, they are obliged to compensate for the loss.

The records of evidence No. 24 are insufficient to recognize that Defendant 7 was engaged in the distribution of losses regardless of the scope of the price index in the water transaction in July 2002. In addition, there is no other evidence to acknowledge this otherwise. As determined in the above "No. 2-B-2", it is difficult to recognize that Defendant 7 did not fulfill the duty of due care as a good manager without considering the Plaintiffs' investment tendency, etc., or that Defendant 7 did an option transaction that exposes the Plaintiffs to an excessive risk by neglecting the duty of protecting customers. Thus, the above plaintiffs' assertion is without merit.

5. Conclusion

Therefore, the plaintiffs' claims against the defendants are dismissed in its entirety because they are without merit, and the judgment of the court of first instance is just in its conclusion, and all appeals against the defendants are dismissed.

[Attachment Omission]

Judges Park Jong-sung (Presiding Judge)

Note 1) The concept of options, comparison with other systems, existence of profits, and options trading strategies, etc. refer to the options concept and trading strategies, attached Form 7.

Note 2) Eul evidence 10 is the result of the lawsuit.

3) At the time of evaluation of the performance of operations, an agreement was made to exclude the profits accrued from the bonds, and the same is also applicable to all discretionary investment contracts below.

4) The date and content of the entire contract by the Plaintiff are as shown in attached Table 1, 2, 3, and 4.

5) The Defendant Company No. 1’s product, as indicated in the evidence A, is explained as a trading technique to sell or purchase high or low-evaluation options, and to ensure risk-hedging or low-evaluation difference in the theoretical price of options by futures or in kind. However, in fact, unlike the hedge, the meaning that options transactions are conducted in order to reduce risks that may arise in the stock transaction. This is a unique term used in Korea’s securities.

6) As the product of the Defendant Company as indicated in the evidence A No. 1, it is the most useful and effective trading method to convert existing dangerous futures speculative trading into a safe and continuous means of acquiring profits, and is not simply a trading method dependent on computer programs, but a work to continuously systemize trading standards, and therefore, it is more important to develop a safe system.

Note 7) Any transaction below is by means of options trading among the goods of the Defendant Company.

Notes 8)Account Number is (Account Number 2 omitted).

9) It was concluded before August 2001 after the expiration of the option maturity of July 2001.

Note 10) Attached 7. Reference to Section 7(f) of the concept of options and trading strategies

Note 11) Attached 7. Reference to Section 7(c) of the concept of options and trading strategies

Note 12) Of the amount of loss suffered by Plaintiff 2 on September 12, 2001, the amount shall be the sum of KRW 3,761,746,562, and the amount of loss incurred from September 20, 2001 to December 13, 2001, 1,474,125,585, excluding any part considered as losses by Plaintiff 3 and 4.

Note 13) The sum of the amount of losses suffered by Plaintiff 2 on September 12, 2001 plus KRW 57,671,122 for losses suffered by Plaintiff 3 during the period from September 20, 201 to December 13, 2001.

Note 14) The method of calculation is the same as above.

Note 15) The above amount is the sum of the amount of losses suffered by the Plaintiff Company on September 12, 2001 and the amount of losses incurred from September 20, 201 to December 13, 2001.

Note 16) Total sum of 6,539,985,559 won, plus the opportunity cost calculated at a rate of 5% per annum on the revenue amount of the conversion threshold and its per annum.